Seeking Alpha
Profile| Send Message|
( followers)  

Last year the global growth in video gaming was vastly more than even the most optimistic analyst predicted. So they upped their estimates for this year. And again the growth is vastly outstripping anyone’s wildest dreams. So what has happened to cause this?

  • Nintendo (OTCPK:NTDOY) has been brave enough to create a succession of games intended for non traditional (or sometimes broader) demographics. Far more than this, it has been even braver and put big marketing spending behind these games so as to reach these demographics. This has been a massive unleashing of the potential that is interactive entertainment.
  • We have escaped from the Sony monopoly. By dominating the market for the PS1 and PS2 generations Sony (NYSE:SNE) had no need to compete or take risks. So it held the market back for over eight years, which is several lifetimes in this industry. Capitalism and competition is great. But when it is hogtied, as happened during the Sony monopoly, everyone loses.
  • We have three platform holders going for it. Sony, Microsoft (NASDAQ:MSFT) and Nintendo are now each investing billions and using the best brains that they can find, both in product and in marketing, so as to fight a three cornered console war. The stakes are enormous, this industry is still at its very beginning. Interactive entertainment will grow to be bigger than film and television combined. As in any war we see great advancement. World War Two started with biplanes and finished with jets, in just six years. The same leap is happening in gaming right now.
  • MMOs mature. This has been an incredible phenomenon. MMOs have gone from text to 2D graphics to 3D graphics to immensely complex alternative existences with hugely powerful social networking. At the same time, such games as Habbo, Runescape and Maple Story have sought out new demographics. There is now a range of MMOs for everyone. But still it is just the beginning. The genre is held back by its dependence on sword and sorcery themes. And commercially, by the supposed $1 billion price tag that would be needed to take on World of Warcraft.
  • Casual gaming. This is the 800 pound gorilla that has come from nowhere to become a multi billion dollar industry in just a few short years. Traditional gaming was too obtuse and too demanding of the player. The industry was committing self harm in a big way with its dependence on the niche that is hard core gaming. Now we have escaped from that and are reaping the rewards.
  • New business models. The industry was stuck for years in depending on high street sales of cardboard and plastic. But gradually, subscriptions and then in-game advertising came along. Then came premier membership levels on free games and micro payments for in-game items. So now there are lots of ways to make money. And that money gets invested back into the industry. So great has been this impact in such a short time that the once near monopolistic cardboard and plastic business model is in danger of dying out.
  • The interweb, and more specifically, broadband. Virtually every gaming platform is now connected. This is a huge change, not only in product delivery but, more importantly, in allowing a step change in the level of interaction. And as this is interactive entertainment, this step change has shaken the industry to its roots. At the same time it has magnified the immense advantages we have over older, non interactive, entertainment media. The interweb is also democratizing publishing which encourages niche products, which further expands the market.
  • Globalization and consolidation. This is a good thing. It has brought massive outside investment into the industry. It has allowed managers to paint with a broad brush and to take risks. It has attracted the best brains and the best talent. Not only to development, but more importantly, increasingly to management.
  • Platform proliferation. I remember, quite recently, when there were just two viable platforms to publish on, PC and Playstation One. Now we have the big three home consoles and in addition their online portals. There are two massively successful dedicated handheld consoles. There is traditional phone gaming, iPod/iPhone, Zune and nGage. The PC has proliferated into a multi faceted platform that is different things to different people. And there are many more. Dedicated handheld games, aircraft seat back gaming and so on. There is even video gaming on SCUBA diving wrist computers! And this proliferation will only increase as the industry becomes massive and as interactive entertainment enters new niches.

The thing about each of these elements (and there are more) is that they don’t work in isolation. They work synergistically which magnifies and leverages the effect that each of them has. So we are in a virtuous upward spiral of serendipity. At long last interactive entertainment is coming out of the shadows and is beginning to give us a glimpse of its true potential. Things may be starting to look big now, but you ain’t seen nothing yet. We are still at the beginning of what we are going to achieve.

It would be unfair (so as to have some balance) not to mention the three biggest problems in the industry:

  • Gaming is still badly misunderstood and mistrusted by the majority of the world’s broadcast media. Entrenched ignorant dinosaurs in positions of power make this so. This is slowly changing as the gaming literate generation rises through the ranks. But it is a slow process. The same also applies to the world’s politicians.
  • Game industry management is very often poor. This is a legacy from when the industry was very small and there were low barriers to entry for managers. So people’s careers have just grown with the industry without them needing to compete in the area of management skills. I have been derided by senior people in the industry for having some professional management training. This gives you an idea how pathetic and insecure some of these people are. This situation is changing, but it will take time.
  • Piracy. We are engaged in an ongoing technical war against the vast majority of people who would rather not pay for their games. Game consoles, effectively, are DRM machines that serve as anti piracy dongles. Once protection is bypassed the business model is broken. This has happened many times in this industry and is happening right now with PSP and retail PC games.

On balance we are still well ahead despite these problems. The fundamental advantages of interactivity, connectivity and non linearity are so great that they overcome all obstacles.

Disclosure: None

Source: 9 Reasons The Gaming Industry Keeps Beating Expectations